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Indonesia Monetary Policy April 2020

Indonesia: Bank Indonesia leaves rates unchanged in April but cuts reserve requirements

At its 13–14 April monetary policy meeting, Bank Indonesia (BI) left the seven-day reverse repo rate at 4.50%. The Bank also left the deposit facility and lending facility rates at 3.75% and 5.25% respectively. However, BI announced measures to boost liquidity and shore up activity, including a 200 basis-point cut to reserve requirements.

The Bank’s decision not to continue its easing cycle, despite the weak domestic and external economic panorama induced by Covid-19, was likely a result of rupiah weakness. While the currency did gain ground in the days prior to the Bank’s meeting, it was still down markedly year-on-year amid a shift to safe-haven assets, and a further rate cut could have caused downward pressure on the currency to resume.

Going forward, Governor Perry Warjiyo reiterated that the Bank had room for further rate cuts if required, although this is likely contingent on currency stability.

As Nicholas Mapa, senior economist at ING, commented: “we expect a gradual sustained appreciation of the currency will be the cue for the central bank to cut rates further. For now, BI looks to help support IDR via triple intervention while looking to fiscal policy to roll out spending to help bolster economic growth against the virus.”

Analysts at Goldman Sachs take a similar view: “Should the IDR stabilize and appreciate in coming months, with decelerating, below-trend growth, downside inflation risks and the very supportive global policy environment, we see more room for BI easing.”

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